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    AVGO   US11135F1012

BROADCOM INC.

(AVGO)
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BROADCOM INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

09/08/2022 | 04:19pm EST
The following discussion and analysis of the financial condition and results of
operations should be read in conjunction with the unaudited condensed
consolidated financial statements and the related notes thereto included
elsewhere in this Quarterly Report on Form 10-Q ("Form 10-Q") and the audited
consolidated financial statements and notes thereto and management's discussion
and analysis of financial condition and results of operations for the fiscal
year ended October 31, 2021 ("fiscal year 2021") included in our Annual Report
on Form 10-K for fiscal year 2021 ("2021 Annual Report on Form 10-K").
References to "Broadcom," "we," "our," and "us" are to Broadcom Inc. and its
consolidated subsidiaries, unless otherwise specified or the context otherwise
requires. This Form 10-Q may contain predictions, estimates and other
forward-looking statements that involve a number of risks and uncertainties,
which are made under the safe harbor provisions of Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). These forward-looking
statements may include the potential impact of the COVID-19 pandemic; our
pending acquisition of VMware, Inc.; projections of financial information;
statements about historical results that may suggest trends for our business;
statements of the plans, strategies and objectives of management for future
operations; and statements of expectation or belief regarding future events
(including any acquisitions we may make), technology developments, our products,
product sales, expenses, liquidity, cash flow and growth rates, customer
concentration and relationships, or enforceability of our intellectual property
("IP") rights. Such statements are based on current expectations, estimates,
forecasts and projections of our industry performance and macroeconomic
conditions, based on management's judgment, beliefs, current trends and market
conditions, and involve risks and uncertainties that may cause actual results to
differ materially from those contained in the forward-looking statements. We
derive most of our forward-looking statements from our operating budgets and
forecasts, which are based upon many detailed assumptions. While we believe that
our assumptions are reasonable, we caution that it is very difficult to predict
the impact of known factors, and it is impossible for us to anticipate all
factors that could affect our actual results. Accordingly, we caution you not to
place undue reliance on these statements. Important factors that could cause
actual results to differ materially from our expectations are disclosed under
"Risk Factors" in Part II, Item 1A of this Form 10-Q, and in other documents we
file from time to time with the Securities and Exchange Commission (the "SEC").
All of the forward-looking statements in this Form 10-Q are qualified in their
entirety by reference to the factors listed above and those discussed under the
heading "Risk Factors" below. We undertake no intent or obligation to publicly
update or revise any forward-looking statement, whether as a result of new
information, future events or otherwise, except as otherwise required by law.

Overview


We are a global technology leader that designs, develops and supplies a broad
range of semiconductor and infrastructure software solutions. We develop
semiconductor devices with a focus on complex digital and mixed signal
complementary metal oxide semiconductor based devices and analog III-V based
products. We have a history of innovation in the semiconductor industry and
offer thousands of products that are used in end products such as enterprise and
data center networking, home connectivity, set-top boxes, broadband access,
telecommunication equipment, smartphones and base stations, data center servers
and storage systems, factory automation, power generation and alternative energy
systems, and electronic displays. Our infrastructure software solutions enable
customers to plan, develop, automate, manage and secure applications across
mainframe, distributed, mobile and cloud platforms. Our portfolio of
industry-leading infrastructure and security software is designed to modernize,
optimize, and secure the most complex hybrid environments, enabling scalability,
agility, automation, insights, resiliency and security. We also offer mission
critical fibre channel storage area networking ("FC SAN") products and related
software in the form of modules, switches and subsystems incorporating multiple
semiconductor products.

We have two reportable segments: semiconductor solutions and infrastructure
software. Our semiconductor solutions segment includes all of our product lines
and IP licensing. Our infrastructure software segment includes our mainframe,
distributed and cyber security solutions, and our FC SAN business.

Quarterly Highlights

Highlights during the fiscal quarter ended July 31, 2022 include the following:

•We generated $4,424 million of cash from operations.

•We paid $1,736 million in cash dividends.

•We repurchased $1,500 million of common stock.

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Pending Acquisition of VMware, Inc.


On May 26, 2022, we entered into an Agreement and Plan of Merger (the "VMware
Merger Agreement") to acquire all of the outstanding shares of VMware, Inc.
("VMware") in a cash-and-stock transaction (the "VMware Merger") that values
VMware at approximately $61 billion, based on the closing price of Broadcom
common stock on May 25, 2022. In addition, we will assume approximately
$8 billion of VMware long-term debt, net of $4 billion expected cash at close.

Under the terms of the VMware Merger Agreement, each share of VMware common
stock issued and outstanding immediately prior to the effective time of the
VMware Merger will be indirectly converted into the right to receive, at the
election of the holder of such share of VMware common stock, either $142.50 in
cash, without interest, or 0.2520 shares of Broadcom common stock. The
stockholder election will be subject to proration, such that the total number of
shares of VMware common stock entitled to receive cash and the total number of
shares of VMware common stock entitled to receive Broadcom common stock, will,
in each case, be equal to 50% of the aggregate number of shares of VMware common
stock issued and outstanding immediately prior to the effective time of the
VMware Merger.

We will assume all outstanding VMware restricted stock unit awards and
performance stock unit awards held by continuing employees. The assumed awards
will be converted into restricted stock unit awards for shares of Broadcom
common stock. All outstanding in-the-money VMware stock options and restricted
stock unit awards held by non-employee directors will be accelerated and
converted into the right to receive cash and shares of Broadcom common stock, in
equal parts.

Effective upon the effective time of the VMware Merger, one member of the VMware
Board of Directors, to be mutually agreed by us and VMware, will be added to our
Board of Directors.

In connection with the execution of the VMware Merger Agreement, we entered into
a commitment letter on May 26, 2022, with certain financial institutions that
committed to provide, subject to the terms and conditions of the commitment
letter, a senior unsecured bridge facility in an aggregate principal amount of
$32 billion.

The VMware Merger, which is expected to be completed in our fiscal year ending
October 29, 2023, is subject to satisfaction or waiver of customary closing
conditions, including (i) adoption of the VMware Merger Agreement by VMware
stockholders, (ii) the expiration or termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvement Act of 1976 (the "HSR Act") and
clearance under the antitrust laws of the European Union and certain other
jurisdictions, and (iii) the effectiveness of the registration statement on Form
S-4 that we filed on July 15, 2022, as may be amended from time to time,
registering approximately 59 million shares of our common stock. We and VMware
each have termination rights under the VMware Merger Agreement and, under
specified circumstances, upon termination of the agreement, we and VMware would
be required to pay the other a termination fee of $1.5 billion.

COVID-19 Update


In response to the ongoing COVID-19 pandemic and the various resulting
government directives, we have taken extensive measures to protect the health
and safety of our employees and contractors at our facilities. We modified our
workplace practices globally, which resulted in some of our employees working
remotely for an extended period of time and some of whom are still working
remotely. While we have implemented personal safety measures at all of our
facilities where our employees are working on site, we may need to modify our
business practices and policies. We continue to monitor the implications of the
COVID-19 pandemic on our business, as well as our customers' and suppliers'
businesses.

The demand environment for our semiconductor products was consistent with our
expectations for the third quarter of our fiscal year ending October 30, 2022
("fiscal year 2022"), with continued investments in technologies and solutions
by enterprises, hyperscale customers and service providers. While we recently
experienced robust demand in this area and record profitability driven by the
supply imbalance, the macroeconomic environment remains uncertain and it may not
be sustainable over the longer term. We continue to experience various
constraints in our supply chain, including with respect to wafers and
substrates. Although supply lead times have stabilized, we continue to have
difficulties in obtaining some necessary components and inputs in a timely
manner to meet demand.

We have also taken various actions to de-risk our business in light of the ongoing uncertainty and strengthen our balance sheet, including closely managing working capital and our debt instruments.


Overall, in light of the changing nature and continuing uncertainty around the
COVID-19 pandemic, our ability to predict the impact of COVID-19 on our business
in future periods remains limited. The effects of the pandemic on our business
are unlikely to be fully realized, or reflected in our financial results, until
future periods.

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Critical Accounting Estimates


The preparation of financial statements in accordance with generally accepted
accounting principles in the United States requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. We base our estimates and assumptions on current facts, historical
experience and various other factors that we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities and the accrual of costs and
expenses that are not readily apparent from other sources. Our actual financial
results may differ materially and adversely from our estimates. Our critical
accounting estimates are those that affect our historical financial statements
materially and involve difficult, subjective or complex judgments by management.
Those estimates include revenue recognition, business combinations, valuation of
goodwill and long-lived assets, inventory valuation, income taxes, retirement
and post-retirement benefit plan assumptions, stock-based compensation expense,
and employee bonus programs.

There were no significant changes in our critical accounting estimates during
the three fiscal quarters ended July 31, 2022 compared to those previously
disclosed in "Critical Accounting Estimates" in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included in the 2021
Annual Report on Form 10-K.

Results of Operations

Fiscal Quarter and Three Fiscal Quarters Ended July 31, 2022 Compared to Fiscal Quarter and Three Fiscal Quarters Ended August 1, 2021

The following tables set forth our results of operations for the periods presented:

                                                                                      Fiscal Quarter Ended
                                                          July 31,             August 1,            July 31,                August 1,
                                                            2022                 2021                 2022                    2021

                                                                 (In millions)                       (As a percentage of net revenue)
Statements of Operations Data:
Net revenue:
Products                                              $    6,627             $    5,064                    78  %                     75  %
Subscriptions and services                                 1,837                  1,714                    22                        25
Total net revenue                                          8,464                  6,778                   100                       100
Cost of revenue:
Cost of products sold                                      1,921                  1,572                    23                        23
Cost of subscriptions and services                           156                    157                     2                         2

Amortization of acquisition-related intangible
assets                                                       705                    851                     8                        13
Restructuring charges                                          1                      1                     -                         -
Total cost of revenue                                      2,783                  2,581                    33                        38
Gross margin                                               5,681                  4,197                    67                        62
Research and development                                   1,255                  1,205                    15                        18
Selling, general and administrative                          323                    346                     4                         5
Amortization of acquisition-related intangible
assets                                                       359                    494                     4                         8
Restructuring, impairment and disposal charges                 7                     26                     -                         -
Total operating expenses                                   1,944                  2,071                    23                        31
Operating income                                      $    3,737             $    2,126                    44  %                     31  %


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                                                                                  Three Fiscal Quarters Ended
                                                          July 31,             August 1,            July 31,                August 1,
                                                            2022                 2021                 2022                    2021

                                                                 (In millions)                       (As a percentage of net revenue)
Statements of Operations Data:
Net revenue:
Products                                              $      19,097          $   15,128                    79  %                     75  %
Subscriptions and services                                    5,176               4,915                    21                        25
Total net revenue                                            24,273              20,043                   100                       100
Cost of revenue:
Cost of products sold                                         5,488               4,792                    22                        24
Cost of subscriptions and services                              470                 450                     2                         2

Amortization of acquisition-related intangible
assets                                                        2,142               2,578                     9                        13
Restructuring charges                                             4                  17                     -                         -
Total cost of revenue                                         8,104               7,837                    33                        39
Gross margin                                                 16,169              12,206                    67                        61
Research and development                                      3,722               3,654                    16                        18
Selling, general and administrative                           1,012               1,010                     4                         5
Amortization of acquisition-related intangible
assets                                                        1,154               1,482                     5                         7
Restructuring, impairment and disposal charges                   42                 122                     -                         1
Total operating expenses                                      5,930               6,268                    25                        31
Operating income                                      $      10,239          $    5,938                    42  %                     30  %


Net Revenue

A relatively small number of customers account for a significant portion of our
net revenue. Direct sales to WT Microelectronics Co., Ltd., a distributor,
accounted for 18% and 19% of our net revenue for the fiscal quarter and three
fiscal quarters ended July 31, 2022, respectively, and 16% and 17% of our net
revenue for the fiscal quarter and three fiscal quarters ended August 1, 2021,
respectively.

We believe aggregate sales to our top five end customers, through all channels,
accounted for approximately 35% of our net revenue for each of the fiscal
quarter and three fiscal quarters ended July 31, 2022 and August 1, 2021. We
believe aggregate sales to Apple Inc., through all channels, accounted for
approximately 20% of our net revenue for each of the fiscal quarter and three
fiscal quarters ended July 31, 2022 and August 1, 2021. We expect to continue to
experience significant customer concentration in future periods. The loss of, or
significant decrease in demand from, any of our top five end customers could
have a material adverse effect on our business, results of operations and
financial condition.

From time to time, some of our key semiconductor customers place large orders or
delay orders, causing our quarterly net revenue to fluctuate significantly. This
is particularly true of our wireless products as fluctuations may be magnified
by the timing of launches, and seasonal variations in sales, of mobile devices.
The ongoing COVID-19 pandemic and macroeconomic uncertainties may cause our net
revenue to fluctuate significantly and impact our results of operations.

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The following tables set forth net revenue by segment for the periods presented:

                                              Fiscal Quarter Ended                                                           Three Fiscal Quarters Ended
                                                                 August 1,                                                                        August 1,
Net Revenue by Segment                   July 31, 2022             2021            $ Change            % Change            July 31, 2022             2021            $ Change            % Change

                                                                                                    (In millions, except percentages)
Semiconductor solutions               $     6,624               $  5,021          $  1,603                   32  %       $       18,726          $  14,749          $  3,977                   27  %
Infrastructure software                     1,840                  1,757                83                    5  %                5,547              5,294               253                    5  %
Total net revenue                     $     8,464               $  6,778          $  1,686                   25  %       $       24,273          $  20,043          $  4,230                   21  %


                                                                          Fiscal Quarter Ended                    Three Fiscal Quarters Ended
                                                                    July 31,             August 1,              July 31,             August 1,
Net Revenue by Segment                                                2022                  2021                  2022                  2021

                                                                                          (As a percentage of net revenue)
Semiconductor solutions                                                   78  %                  74  %                77  %                  74  %
Infrastructure software                                                   22                     26                   23                     26
Total net revenue                                                        100  %                 100  %               100  %                 100  %


Net revenue from our semiconductor solutions segment increased in the fiscal
quarter and three fiscal quarters ended July 31, 2022 compared to the prior year
fiscal periods due to ongoing strong product demand, primarily for networking,
server storage and broadband products, as well as higher demand for our wireless
content in mobile devices. Net revenue from our infrastructure software segment
increased in the fiscal quarter and three fiscal quarters ended July 31, 2022
compared to the prior year fiscal periods primarily due to higher demand for our
mainframe solutions and FC SAN products.

Gross Margin


Gross margin was $5,681 million, or 67% of net revenue, for the fiscal quarter
ended July 31, 2022 compared to $4,197 million, or 62% of net revenue, for the
fiscal quarter ended August 1, 2021, and $16,169 million, or 67% of net revenue,
for the three fiscal quarters ended July 31, 2022 compared to $12,206 million,
or 61% of net revenue, for the three fiscal quarters ended August 1, 2021.

The increases were primarily due to lower amortization of acquisition-related
intangible assets mainly from our 2016 acquisition of Broadcom Corporation and,
to a lesser extent, favorable margin within our semiconductor solutions segment.

Research and Development Expense


Research and development expense increased $50 million, or 4%, and $68 million,
or 2%, for the fiscal quarter and three fiscal quarters ended July 31, 2022,
respectively, compared to the prior year fiscal periods. The increases were
primarily due to higher variable employee compensation expense and engineering
project costs, partially offset by lower stock-based compensation expense
reflecting the full vesting of certain equity awards and the effect of
forfeitures.

Selling, General and Administrative Expense


Selling, general and administrative expense decreased $23 million, or 7%, for
the fiscal quarter ended July 31, 2022, compared to the prior year fiscal
period, primarily due to lower stock-based compensation expense. Selling,
general and administrative expense for the three fiscal quarters ended July 31,
2022 was relatively flat compared to the prior year fiscal period as higher
variable employee compensation expense and sales initiatives were offset by
lower acquisition-related costs and stock-based compensation expense.

Amortization of Acquisition-Related Intangible Assets


Amortization of acquisition-related intangible assets recognized in operating
expenses decreased $135 million, or 27%, and $328 million, or 22%, for the
fiscal quarter and three fiscal quarters ended July 31, 2022, respectively,
compared to the prior year fiscal periods. The decreases were primarily due to
lower amortization of certain intangible assets from our acquisition of CA, Inc.

Restructuring, Impairment and Disposal Charges


Restructuring, impairment and disposal charges recognized in operating expenses
decreased $19 million, or 73%, and $80 million, or 66%, for the fiscal quarter
and three fiscal quarters ended July 31, 2022, respectively, compared to the
prior

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year fiscal periods. The decreases were primarily due to lower employee termination costs in the current year fiscal periods following the completion of key restructuring activities from acquisitions.

Stock-Based Compensation Expense


Total stock-based compensation expense was $373 million and $1,146 million for
the fiscal quarter and three fiscal quarters ended July 31, 2022, respectively,
compared to $421 million and $1,290 million for the fiscal quarter and three
fiscal quarters ended August 1, 2021, respectively. The decreases primarily
reflect the full vesting of certain equity awards and the effect of forfeitures.

The following table sets forth the total unrecognized compensation cost related
to unvested stock-based awards outstanding and expected to vest as of July 31,
2022, which we expect to recognize over the remaining weighted-average service
period of 2.9 years.
Fiscal Year:           Unrecognized Compensation Cost, Net of Expected Forfeitures
                                              (In millions)
2022 (remainder)      $                                                        375
2023                                                                         1,197
2024                                                                           822
2025                                                                           485
2026                                                                           114

Total                 $                                                      2,993


During the first quarter of fiscal year ended November 3, 2019 ("fiscal year
2019"), our Compensation Committee approved a broad-based program of multi-year
equity grants of time- and market-based restricted stock units (the "Multi-Year
Equity Awards") in lieu of our annual employee equity awards historically
granted on March 15 of each year. Each Multi-Year Equity Award vests on the same
basis as four annual grants made March 15 of each year, beginning in fiscal year
2019, with successive four-year vesting periods. We recognize stock-based
compensation expense related to the Multi-Year Equity Awards from the grant date
through their respective vesting date, ranging from 4 years to 7 years.

Segment Operating Results

                                           Fiscal Quarter Ended                                                         Three Fiscal Quarters Ended
                                       July 31,               August 1,                                                  July 31,          August 1,
Operating Income by Segment              2022                   2021       
     $ Change            % Change              2022              2021            $ Change            % Change

                                                                                              (In millions, except percentages)
Semiconductor solutions           $     3,916               $    2,720          $  1,196                   44  %       $  10,891          $  7,828          $  3,063                   39  %
Infrastructure software                 1,283                    1,226                57                    5  %           3,903             3,700               203                    5  %
Unallocated expenses                   (1,462)                  (1,820)              358                  (20) %          (4,555)           (5,590)            1,035                  (19) %
Total operating income            $     3,737               $    2,126          $  1,611                   76  %       $  10,239          $  5,938          $  4,301                   72  %


Operating income from our semiconductor solutions segment increased in the
fiscal quarter and three fiscal quarters ended July 31, 2022 compared to the
prior year fiscal periods, primarily due to higher net revenue from networking,
server storage, broadband, and wireless products, as well as higher gross
margin. Operating income from our infrastructure software segment increased in
the fiscal quarter and three fiscal quarters ended July 31, 2022 compared to the
prior year fiscal periods, primarily due to higher demand for our mainframe
solutions and FC SAN products.

Unallocated expenses include amortization of acquisition-related intangible
assets; stock-based compensation expense; restructuring, impairment and disposal
charges; acquisition-related costs; and other costs that are not used in
evaluating the results of, or in allocating resources to, our segments.
Unallocated expenses decreased 20% and 19% for the fiscal quarter and three
fiscal quarters ended July 31, 2022, respectively, compared to the prior year
fiscal periods primarily due to lower amortization of acquisition-related
intangible assets.

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Non-Operating Income and Expenses


Interest expense. Interest expense was $406 million and $1,331 million for the
fiscal quarter and three fiscal quarters ended July 31, 2022, respectively,
compared to $415 million and $1,451 million for the fiscal quarter and three
fiscal quarters ended August 1, 2021, respectively. The decrease in the fiscal
quarter ended July 31, 2022 was primarily due to the September 2021 debt
transactions, resulting in overall lower interest rates in the current year
fiscal period. The decrease in three fiscal quarters ended July 31, 2022 was
primarily due to lower losses on extinguishment of debt. We expect to incur
additional interest expense in future periods as a result of indebtedness
associated with the pending VMware Merger.

Other income (expense), net. Other income (expense), net, includes interest
income, gains or losses on investments, foreign currency remeasurement and other
miscellaneous items. Other income, net, was $6 million and other expense, net
was $94 million for the fiscal quarter and three fiscal quarters ended July 31,
2022, respectively, compared to other income, net of $15 million and $109
million for the fiscal quarter and three fiscal quarters ended August 1, 2021,
respectively. The changes were primarily due to changes in investment gains or
losses.

Provision for (benefit from) income taxes. The provision for income taxes was
$263 million and $678 million for the fiscal quarter and three fiscal quarters
ended July 31, 2022, respectively, compared to the benefit from income taxes of
$150 million and $151 million for the fiscal quarter and three fiscal quarters
ended August 1, 2021, respectively. The provision for income taxes in the
current year fiscal periods was primarily driven by income before income taxes,
offset by a shift in jurisdictional mix of income and expenses, and excess tax
benefits from stock-based awards. The benefit from income taxes for the fiscal
quarter ended August 1, 2021 was primarily due to excess tax benefits from
stock-based awards, the recognition of gross unrecognized tax benefits as a
result of lapses of statutes of limitations and audit settlements, and a shift
in jurisdictional mix of income and expenses, offset in part by income tax
expense on operations. The benefit from income taxes for the three fiscal
quarters ended August 1, 2021 reflected excess tax benefits from stock-based
awards and the recognition of gross unrecognized tax benefits as a result of
lapses of statutes of limitations and audit settlements, offset in part by
income tax expense on operations.

Liquidity and Capital Resources


The following section discusses our principal liquidity and capital resources as
well as our principal liquidity requirements and uses of cash. Our cash and cash
equivalents are maintained in highly liquid investments with remaining
maturities of 90 days or less at the time of purchase. We believe our cash
equivalents are liquid and accessible.

Our primary sources of liquidity as of July 31, 2022 consisted of: (i) $9,977
million in cash and cash equivalents, (ii) cash we expect to generate from
operations and (iii) available capacity under our $7.5 billion unsecured
revolving credit facility (the "Revolving Facility"). In addition, we may also
generate cash from the sale of assets and debt or equity financing from time to
time.

Our short-term and long-term liquidity requirements primarily arise from:
(i) business acquisitions and investments we may make from time to time,
including the pending VMware Merger, (ii) working capital requirements,
(iii) research and development and capital expenditure needs, (iv) cash dividend
payments (if and when declared by our Board of Directors), (v) interest and
principal payments related to our $41,227 million of outstanding indebtedness,
(vi) share repurchases, and (vii) payment of income taxes. Our ability to fund
these requirements will depend, in part, on our future cash flows, which are
determined by our future operating performance and, therefore, subject to
prevailing global macroeconomic conditions and financial, business and other
factors, some of which are beyond our control. We expect capital expenditures to
be consistent in fiscal year 2022 as compared to fiscal year 2021. Our debt and
liquidity needs will increase as a result of the pending VMware Merger, and we
intend to fund the cash portion of the consideration with $32 billion in new,
fully committed debt financing.

We believe that our cash and cash equivalents on hand, cash flows from
operations, the Revolving Facility, as well as the committed debt funding
related to the pending VMware Merger, will provide sufficient liquidity to
operate our business and fund our current and assumed obligations for at least
the next 12 months. For additional information regarding our cash requirement
from contractual obligations and indebtedness, see Note 11. "Commitments and
Contingencies" and Note 7. "Borrowings" in Part I, Item 1 of this Form 10-Q.

From time to time, we engage in discussions with third parties regarding
potential acquisitions of, or investments in, businesses, technologies and
product lines. Any such transaction, or evaluation of potential transactions,
could require significant use of our cash and cash equivalents, or require us to
increase our borrowings to fund such transactions. If we do not have sufficient
cash to fund our operations or finance growth opportunities, including
acquisitions, or unanticipated capital expenditures, our business and financial
condition could suffer. In such circumstances, we may also seek to obtain new
debt or equity financing. However, we cannot assure you that such additional
financing will be available on terms acceptable to us or at all. Our ability to
service our senior unsecured notes and any other indebtedness we may incur will
depend on our

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ability to generate cash in the future. We may also elect to sell additional debt or equity securities for reasons other than those specified above.


In addition, we may, at any time and from time to time, seek to retire or
purchase our outstanding debt through cash tenders and/or exchanges for equity
or debt, in open-market purchases, privately negotiated transactions or
otherwise. Such tenders, exchanges or purchases, if any, will be upon such terms
and at such prices as we may determine, and will depend on prevailing market
conditions, our liquidity requirements, contractual restrictions and other
factors. The amounts involved may be material.

Working Capital

Working capital decreased to $8,859 million at July 31, 2022 from $10,305 million at October 31, 2021. The decrease was primarily attributable to the following:


•Cash and cash equivalents decreased to $9,977 million at July 31, 2022 from
$12,163 million at October 31, 2021, primarily due to $7,000 million of common
stock repurchases, $5,250 million of dividend payments, $2,352 million of debt
payments, and $1,181 million of employee withholding tax payments related to net
settled equity awards. These decreases were partially offset by $12,153 million
in net cash provided by operating activities and $1,935 million in proceeds from
long-term borrowings.

•Other current liabilities increased to $4,607 million at July 31, 2022 from $3,839 million at October 31, 2021, primarily due to increases in contract liabilities and interest payable.

These decreases in working capital were offset in part by the following:

•Accounts receivable increased to $2,708 million at July 31, 2022 from $2,071 million at October 31, 2021, primarily due to revenue linearity and less receivables sold through factoring arrangements.

•Inventory increased to $1,838 million at July 31, 2022 from $1,297 million at October 31, 2021, primarily to support customer demand and due to higher material costs.

•Accounts payable decreased to $712 million at July 31, 2022 from $1,086 million at October 31, 2021, primarily due to the timing of vendor payments.

Capital Returns

Three Fiscal Quarters Ended

                                                                         July 31,              August 1,
                                                                           2022                  2021

                                                                     (In

millions, except per share data) Cash dividends declared and paid per share to common stockholders

                                                         $        12.30          $    10.80
Cash dividends declared and paid to common stockholders              $      

5,026 $ 4,427 Cash dividends declared and paid per share to preferred stockholders

                                                         $        60.00          $    60.00
Cash dividends declared and paid to preferred stockholders           $          224          $      224
Stock repurchases                                                    $        7,000          $        -


In December 2021, our Board of Directors authorized a stock repurchase program
to repurchase up to $10 billion of our common stock from time to time on or
prior to December 31, 2022. During the three fiscal quarters ended July 31,
2022, we repurchased and retired approximately 12 million shares of our common
stock at a weighted average price of $595.96 under this stock repurchase
program. In May 2022, our Board of Directors authorized another stock repurchase
program to repurchase up to an additional $10 billion of our common stock from
time to time through December 31, 2023.

Repurchases under our stock repurchase programs may be made through a variety of
methods, including open market or privately negotiated purchases. The timing and
amount of shares repurchased will depend on the stock price, business and market
conditions, corporate and regulatory requirements, alternative investment
opportunities, acquisition opportunities and other factors. We are not obligated
to repurchase any specific amount of shares of common stock, and the stock
repurchase programs may be suspended or terminated at any time.

During the three fiscal quarters ended July 31, 2022 and August 1, 2021, we paid
approximately $1,181 million and $1,033 million, respectively, in employee
withholding taxes due upon the vesting of net settled equity awards. We withheld
over 2 million shares of common stock from employees in connection with such net
share settlements during each of the three fiscal quarters ended July 31, 2022
and August 1, 2021.

                                       31

--------------------------------------------------------------------------------

  Table of Contents

Cash Flows
                                                       Three Fiscal Quarters Ended
                                                         July 31,               August 1,
                                                           2022                   2021

                                                              (In millions)
Net cash provided by operating activities       $       12,153                 $  10,223
Net cash used in investing activities                     (539)             

(295)

Net cash used in financing activities                  (13,800)             

(6,441)

Net change in cash and cash equivalents         $       (2,186)                $   3,487


Operating Activities

Cash provided by operating activities consisted of net income adjusted for
certain non-cash and other items and changes in assets and liabilities. The
$1,930 million increase in cash provided by operations during the three fiscal
quarters ended July 31, 2022 compared to the prior year fiscal period was
primarily due to $3,389 million higher net income and certain non-cash
adjustments including deferred taxes and other non-cash taxes and (gain) loss on
investments, offset by a decrease in amortization of intangible assets and
stock-based compensation, as well as a $1,507 million decrease resulting from
changes in operating assets and liabilities.

Investing Activities

Cash flows from investing activities primarily consisted of cash used for acquisitions, capital expenditures, and proceeds and payments related to investments. The $244 million increase in cash used in investing activities during the three fiscal quarters ended July 31, 2022 compared to the prior year fiscal period was primarily due to a $231 million increase in cash paid for acquisitions.

Financing Activities


Cash flows from financing activities primarily consisted of our stock
repurchases, dividend payments, proceeds and payments related to long-term
borrowings, and employee withholding tax payments related to net settled equity
awards. The $7,359 million increase in cash used in financing activities during
the three fiscal quarters ended July 31, 2022 compared to the prior year fiscal
period was primarily due to $7,000 million in common stock repurchases, a $599
million increase in dividend payments and a $148 million increase in employee
withholding tax payments related to net settled equity awards, offset in part by
a $412 million change in net borrowing activities.

Accounting Changes and Recent Accounting Standards


For a description of accounting changes and recent accounting standards,
including the expected dates of adoption and estimated effects, if any, in our
condensed consolidated financial statements, see Note 1. "Overview, Basis of
Presentation and Significant Accounting Policies" in Part I, Item 1 of this Form
10-Q.

© Edgar Online, source Glimpses

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